Bitcoin 101 – Where do bitcoins come from?

Your Personal Digital Accountants

New bitcoins are distributed as payment to transaction processors known as miners (see What is Bitcoin Mining? for more information on how mining is performed).

In the early days, all miners were required to wear those green accountant visors.

Imagine a room full of accountants sitting at desks verifying all the trades happening across the globe. At the front of the room is their boss who pays exactly 25 coins every 10 minutes to whichever accountant does the most work since the last distribution of coins. There’s a massive amount of transactions that need to be processed, and the newly issued coins are a reward for those doing the most work to support the system.

Instead of human accountants, bitcoin uses the world’s largest network of computers to to verify the transactions. And instead of a boss sitting at the front of the room, coins are generated and distributed by the software on that global network of computers. Transactions are recorded in a “block,” which is a ledger of all transactions that occurred over the last 10 minutes, as well as a small payment to the miner that verified it. The block payment system provides incentive to dedicate computing power to the bitcoin network.

A Limited, Divisible Supply

Bitcoins are designed to be a deflationary currency, meaning that each coin will get more valuable over time relative to the products and services that it can purchase.  The rate of creation is set to a publicly available and pre-determined schedule. When bitcoin was first created in January 2009, each 10 minute block paid 50 bitcoins, and this number will halve every 4 years until the last coin is created in 2140. The first halving occurred in December 2013, so the current creation rate is 25 bitcoins every 10 minutes.

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The total number of bitcoins ever created will be 21,000,000, and the current money supply of bitcoins recently passed 11,000,000. This means that more than half the bitcoins that will ever exist have already been created.

Since the number of bitcoins in existence can never be increased beyond the pre-scheduled amount, the purchasing power of 1 BTC is expected to grow. To make small purchases possible, each bitcoin is infinitely divisible and can be used in increments. For example, a car may cost 300 BTC while a slice of pizza costs 0.02 BTC.

For more information about the basics of bitcoin check out the rest of our Bitcoin 101 lessons:

     Are Bitcoins Money?

     What are Bitcoins?

     How are Bitcoins Stored?